Q. Do I have to enter an umbrella company with the new IR35 inclusion rules for contractors in the public sector. My agency is claiming 20% for sick, pension & holiday pay and their fees …but I do not require these as can do this myself as my contract is short and I usually wait until year end to decide how much I can afford. Also will then take 20% approx in PAYE & NI. So I will be less 40% of original daily rate. Can I stay out of the umbrella scheme and what are the choices also where are the contingency for further development & training as a public sector contractors? Also what about employers NI? I don’t want to have to cover this now nor do I want to collect VAT? My contract is very short, 40 days from 1st April. What can I do to save my money for my period of unemployment as I don’t want to sign on.
A. Assuming you are currently outside IR35 and will be affected by the imminent changes to the Public Sector legislation, the need to exhaust other options will primarily be determined once the IR35 assessment tool is issued by HMRC this Thursday 2nd March. Whilst the initial disclosure was issued with the intent to prepare all Public Sector contractors for April 2017, we found the ambiguity and never-ending speculation to further scaremonger contractors and agencies alike. Having spoken to industry specialists and government officials, it has now come to light that not all Public Sector contractors will be affected by this new reform and there will certainly be room for manoeuvre for contractors to remain outside IR35.
Should the new reform result in you shifting inside the IR35 band, your options will be to either utilise the services of an Umbrella company or continue operating through your own Personal Service Company inside IR35.
The latter option may not in fact be an alternative for you if you are currently operating through an agency, as agencies tend to shy away from paying wages into a Personal Service Company payroll.
Now supposing you have the only option of utilising the services of an Umbrella company or your own agency, both will pretty much operate the same way with the only difference being the respective fee each will charge.
You mentioned that your agency deduct 20% of your earnings and tuck away as sick pay, this contribution of yours will be fully repayable to you if by the end of the contract you have not taken any time off sick, the same will also apply to holiday pay.
The pay as you earn and national insurance deduction is in fact 20% and 12% assuming you are within the basic rate band, needless to say, the portion of earnings deducted for the social security contributions is quite breathtaking especially when you factor in other deductions such as agency fees etc.
Staying out of the Umbrella option is an alternative only if your agency is handling your tax affairs, we have established above that operating through your own PSC or even as a sole trader is an unlikely option.
Whilst your contract duration is for a short space of time, you will be taxed at source on whichever route you opt for and therefore the only disposal income remaining will be your post tax earnings.
You only need to consider becoming VAT registered if you are expecting your turnover to reach the £83,000 threshold however you do have the option to make a voluntary registration. If you happen to already be registered for VAT, you have the option to de-register if your expected turnover will fall below the £81,000 threshold.
This answer is provided by Qdos Accounting.